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Don’t believe the hype about economic good news

by Sam Ashworth-Hayes | 29.07.2016

Whenever the Brexiteers were confronted with experts warning that leaving the EU could be economically damaging, they knew just what to do: shout “scaremongering”, make a breezy accusation about EU-funded elites – and dismiss “experts”.

They were, of course, wrong. It’s been a month since the UK voted to leave the European Union, and  the official Leave campaign’s prediction that “after we Vote Leave, there won’t be a sudden change that disrupts the economy” is not holding up well.

Brexiteers might point to the news that the UK economy grew 0.6% in the second quarter of this year or that GlaxoSmithKline (GSK) is investing £275 million in expanding its UK sites. But the second quarter performance predates the result of the referendum, and the chief executive of GSK, Sir Andrew Witty, told the Financial Times that the Brexit vote “adds a bit to the negative side of the scales in making investment decisions”.

Investment will not stop as a result of the vote, but spread this caution across an economy and it could fall by a surprising amount.  And there are other signs of trouble ahead as well.

  1. The morning after the vote, the pound fell to its lowest level in 31 years, before hitting a fresh new low earlier this month.
  2. Because the moment the result became clear, the UK became a less attractive place to put your money. The International Monetary Fund now thinks the UK will only grow half as much next year as it would have – in the best case scenario.
  3. And it’s not just the IMF scaremongering. The Confederation of British Industry says manufacturers’ optimism about the business situation has seen its fastest drop since 2009.
  4. And the latest purchasing managers index – an early indicator for the state of the British economy – saw its largest ever fall, returning to its 2009 level.
  5. And you can add to that the fall in the FTSE 250, which plunged after the vote, and is still down 2% from its pre-referendum high.
  6. The Express and its “BREXIT BOOM” headline writers would probably disagree. After all, the FTSE 100 is higher than it was before the vote! Except that the FTSE 100 companies generate quite a lot of their income abroad – so the lower pound inflates their value.
  7. Back in Britain, people are trying to get their money out of some investments. Seven property funds have suspended trading in the biggest freeze of investment funds since 2008. Evidence is mounting that property prices have stalled and may be falling.
  8. The government is also hurting. In one of his last acts as Chancellor, George Osborne dropped his ambition to deliver a budget surplus.
  9. And his successor, Philip Hammond, says he might have to “reset” fiscal policy in the Autumn. He can try to give the economy a shot in the arm by spending more, but there are limits to how far he can go…
  10. Particularly after the Brexit vote saw us lose our AAA credit rating.  As it is, UK borrowing in 2015/2016 was £75 billion or a big 4% of GDP and be £65 billion higher than forecast over the next couple of years as Hammond tries to counter the post-referendum slowdown.
  11. Hammond might get some help from the Bank of England, where chief economist Andy Haldane thinks we need a stimulus “sledgehammer”: interest rate cuts, and more quantitative easing. Mark Carney, the Bank’s governor, has already “guided” investors to expect lower interest rates.
  12. The real worry is that all of this is still unfolding. People are still optimistic that we’ll work out a good deal with the EU, staying in the single market. If we don’t, things could be much worse. In any event the uncertainty could drag on for years.
  13. And even the Brexit architects are already feeling the pinch. Boris Johnson, our new foreign secretary, has lost his £275,000 a year Daily Telegraph column, and has been forced into a flatsharing arrangement with Liam Fox and David Davis. It’s a hard life.

Edited by Michael Prest

3 Responses to “Don’t believe the hype about economic good news”

  • What an amazing article with not a modicum of common sense! Can we establish one thing for sure…. NO ONE thought the result of the referendum would come out in favour of Leave.

    Initially this caused seismic shockwaves in government and business alike which was mirrored in the FTSE100 and FTSE250. We were then told to ignore the ftse 100 as for some it recovered too quickly and to see what destruction we had brought about on ourselves by observing the FTSE250. The business world soon realised that little had changed and soon reverted back to type.

    This is now borne out by the fact the FTSE250 is a negligible 0.003% lower than that at Brexit eve which in truth was a high falsity due to large amounts of trades betting on a Remain victory.

    You also quote the IMF who intially predicated immediate recession if Leave won the day. 3 Weeks later, once the shockwaves had been assuaged, this was revised to 1.6% growth. What an amaziing turnaround!!

    Yes, we are in a period of uncertainty and will continue to be so for some time but we now have an immense opprotunity that we should grasp with both hands.

    Our destiny is in our own hands!

    As for boris having to share a flat….hmmmm, you really are clutching at straws trying to generate some negativity.

  • Thank you Sam.

    http://www.express.co.uk/news/uk/691589/Britain-BOOMS-EU-vote-economy-economic-news-Brexit

    I have complained to the Express about this absurd headline (22 July): “Britain BOOMS after EU vote: Ignore the doom-mongers…it’s good news all round”

    I cited the forward-looking data that was available on 22 July as well as the credit downgrades, IMF forecast downgrade and consumer confidence reading.

    If they do not agree to publish a correction I will go to IPSO.

  • Well said sir! Just emailed ipso myself asking for advice on whether they can do anything to curb full-blown newspaper campaigns of lies and deceit in relation to the EU referendum. I’ve often wondered why ipso appears to be so powerless in the face of the gutter press. I wonder if they’ll tell me why.
    Perhaps if enough of us emailed them, they might at least explain themselves properly.